Given the cataclysmic nature of the Covid-19 economic crisis conventional economic responses, of pursuing counter-cyclical fiscal policy, which is increasing public spending and cutting taxes, to stimulate the economy, employment and growth, on their own, will not do as solutions for South Africa.
Ideological responses or wishful thinking will also not do. Finance Minister Tito Mboweni (2020) has said in the Covid-19 Emergency Budget that government intends to borrow US$7bn (R118bn) from international finance institutions, which includes a US$1bn loan from the New Development Bank, and US$4.2bn through the International Monetary Fund’s rapid financing instrument.
The Covid-19 response inevitably will mean that there will be substantial reallocations in government budgets to new Covid-19 related priority sectors. It will be important that sectors that support economic growth, livelihoods and critical public services should not be slashed, as part of Covid-19 related budget reallocations.
Crucially, the government will need an integrated economic stimulus response, which should focus on rebuilding neglected public and social infrastructure – housing, education, water, transport and technology; while at the same time focusing on saving current critical businesses, jobs and opportunities, and creating new businesses, job creation initiatives and economic diversification.
Most South Africans eke a living in the informal economy, travel in informal transport and live in informal housing. This has also increased the spread of Covid-19. Formalising the informal economy, travel and housing should be a core element of an integrated economic response. The expansion of post-Covid-19 manufacturing sectors should be around formalising these sectors. Mass skills development programs must also be centred on the formalisation of the informal sectors of the economy.
An integrated response must also include overcoming the social impact of Covid-19, ranging from an explosion in gender-based violence, rise in mental illness to an escalation in crime. The backbone of an integrated economic response would therefore be based on building value chains that will produce the infrastructure, skills and material to deal with all these problems in an integrated way.
Such an integrated economic strategy must focus on both on Covid-19 relief as well as post-Covid-19 economic reconstruction – both at the same time. A new integrated Covid-19 response strategy should carefully select the strategic sectors to be expanded or newly created, to diversify the economy and which new technologies will help South Africa benefit from the Covid-19 acceleration in the digital economy.
In all these integrated economic recovery initiatives government should strike partnerships with the private sector to initiate business recovery and creation. Alternatively, to partner and public and private partnerships according to sound business principles set by private sector players who know their industries, not bureaucrats. An integrated Covid-19 economic response should encompass 12 pillars.
12 pillars for an integrated Covid-19 economic recovery plan
Build new industries, jobs and growth around public service delivery
The first pillar would be to support current industries and create new ones through expanding neglected public services in the areas of neglected which have increased the spread and impact of Covid-19. South Africa has large informal settlements, dilapidated township and rural housing – where no social distancing is possible. This is an opportunity to use a giant rollout of new housing to sustain existing construction-related businesses and creating new ones, jobs and growth.
The second pillar should be to foster a housing-material manufacturing sector, where all the inputs, equipment and material that goes into construction would be manufactured. New mass Post-Covid-19 skills training for the poorly skilled would then be built around such a sector.
Crumbling water and sanitation infrastructure in the townships, informal settlements and rural areas will fanning the Covid-19 spread. The third pillar would be expanding water and sanitation across the country, with similarly, a manufacturing arm which would build the inputs, material and equipment for the rebuilding of a water and sanitation sector.
South Africa’s public education system is falling apart – whether the poor quality of education itself, school infrastructure such as classrooms, equipment and toilets. Human development is going to be essential, both to reskilled those losing jobs because of Covid-19 and those who were joblosses before the virus. However, the skills development should focus on training relevant to operate in the post-Covid-19 economy.
The fourth pillar of a Covid-19 integrated economic, social and health strategy would be should upgrading the public education system – again linked to construction manufacturing, aimed at boosting current businesses, creating new ones and expanding skills.
Covid-19 has exposed South Africa’s ailing health system. The fifth pillar should be rebuilding health infrastructure, equipment and skills should be a crucial part of an integrated economic plan. South Africa imports most of its health equipment, personal protective equipment (PPE) and medicines from abroad. This is the moment to build a health-related manufacturing sector which could not only supply local needs, but also African and developing country needs. A mass health manufacturing skills development programme would then focus on fostering the skills needed for such a new expanded health manufacturing sector.
Congested, dilapidated and outdated public transport, with mini-bus taxes, trains and metered-taxes has been impossible to practice social distancing – and is helping along the rapid spread of the virus. Covid-19 is the moment to restructure the public transport economy, infrastructure and culture. As a sixth pillar, government will have to garner the political courage to transition South Africa from the death-trap minibus taxis to safer, cleaner and integrated transport – and link a skills development programme around these.
Fostering a green economy
Covid-19 has battered South Africa’s food production chain. Producing food for the country, but also the world should be the sixth pillar of an integrated response. It should focus on expanding existing viable commercial farming, foster new commercial farming and upscale informal farming to produce the products the country and the world needs. A seventh pillar would be to build the agricultural manufacturing sector to produce the inputs to agriculture, whether the consumable ones, such as seeds, fertilisers and oil; and capital inputs such as tractors, machineries and tools to produce the agriculture product. Agricultural skills development should be linked to these areas. But it also includes agriculture education – from vocational education, colleges to high-end research at specialised agricultural research and higher education institutions.
In fact, Covid-19 brings an opportunity to develop the entire commercial value chain that brings the agriculture product from raw material in the field to the refined product, its by-products and services. It also includes agriculture-based manufacturing, machinery, equipment and tools, and technology production. Very few developing countries link agriculture to manufacturing. The inputs for agriculture manufacturing have great catalytic power to boost manufacturing across economic sectors. Developing and maintaining rural infrastructure, environmental management and tourism are critical to the value chain. It also includes private and public financial services focusing on land and agriculture. The agricultural logistics, transport and branding are crucial commercial elements.
The catalytic development, jobs and wealth are not in producing the raw material. The jobs, industrialisation and growth take place in processing, adding value and providing niche products out of the raw material.
The eighth pillar, is the opportunity to foster a green economy manufacturing hub in South Africa to provide new solar, wind and other sustainable energy sources. The inputs, materials and infrastructure must be produce here. A mass skills development program should be launch alongside to provide the skills for such a new manufacturing sector. Covid-19 provides an opportunity to create a recycling manufacturing economy, in the way China, Denmark and Sweden have done, where waste are reproduced as either inputs for others or as new products or to produce energy.
Inger Andersen, the head of the UN’s Environmental Agency said rightly that while the origin of the Covid-19 outbreak and its transmission pathway are not yet clear, the frequency of diseases passing from animals to humans are on the rise, because of an increased destruction of wild habitats by human activity (Carrington 2020). “Nature is sending us a message with the coronavirus pandemic and the ongoing climate crisis” (Carrington 2020). It is going to be crucial that a Covid-19 strategy includes restoring the environment through the clean-up of land, air and water pollution or after mining and manufacturing processes. In the US the environmental restoration industry is estimated at US$25bn a year, generation over a quarter million jobs (BenDor, Lester, Livengood, Davis and Yonavjak 2015). There are rich opportunities for South Africa to create a post-Covid-19 environmental restoration sector, with a manufacturing, skills development and community participation.
Covid-19 brings new local and global needs, new business and job opportunities
Covid-19, has disrupted global supply chains of manufacturing, which may offer South Africa opportunities to position the country as a producer of parts, material and products for global companies. The nature of global production has now changed to such extent that in many industries the components of products can be separately assembled in different countries. China, as part of a dedicated industrial strategy, over the past decades, has successfully positioned itself as the premier supplier of parts, materials and components of manufactured products of companies around the world.
More recently, China has been able to cover the full manufacturing supply chain ecosystem – from its low-cost labourers providing the components of the manufacturing products to its increasingly affluent middle-class becoming the major consumers of the final value-added products.
The outbreak of Covid-19 has forced many global companies, who rely on Chinese factories to produce material, components and parts, to close down plants. The global impact of the virus – deaths, closures of businesses and the disruption of whole economies in developing and developed countries, will undoubtedly darken perceptions of China. It is very likely that many global companies will increasingly diversify their supply chains, changing their business models away from China and using new technology which reduces face-to-face transactions.
South Africa will have to prioritise new business, employment and growth based on the current and new domestic and global needs unleashed by Covid-19.
Covid-19 will accelerate the inevitable expansion of the digital economy, with many companies and people shifting online quicker than before the virus. The new needs, ranging from working from home, to less to face-to-face interactive manufacturing and services, to online education – brought by Covid-19 bring opportunities for new businesses to be created to meet these needs.
South Africa’s Fourth Industrial Revolution (4IR) strategy should focus on positioning the country as a new hub to produce technology that reduces face-to-face transactions. As a ninth pillar, Covid-19 provide the opportunity for South Africa to leapfrog into the digital economy. Increasing infrastructure and access to cheaper, faster internet, and new technologies, is a crucial for South Africa to benefit from the expansion of the digital economy. A Covid-19 strategy will bring South Africa’s businesses, public schools and homes into the digital economy. This means that there has to be dramatic expansion of the digital economy manufacturing sector that should produce the materials, products and new mass digital skills.
Developmental fiscal and monetary policy
Accommodative fiscal and monetary policy reforms should form the tenth pillar of the economic recovery. However, “monetary policy is a blunt instrument. It is incapable of targeting assistance to especially hard-hit sectors of the economy or specific geographic regions” (Koenig 2020: 4). That means that the emphasis has to be on fiscal policy, “coordinated with intervention in credit markets” (Koenig 2020: 4).
Fiscal policy must have a programme of payment and tax holidays, easier finance, low-interest loans and softer collateral requirements for business and private individuals from private and public institutions. Debt holidays or a payment breaks should be introduced by banks for household mortgage payments, vehicle loans and business loans, and insurance payments. Similarly, property rates and rental fee freeze should be considered by government at the municipal level.
Value-added tax (VAT) refunds should also be introduced, which would allow businesses and employees to reclaim VAT on goods purchased. Government must also introduce tax breaks or holidays for businesses in sectors heavily impacted by Covid-19. There should also be a consideration of struggling companies, self-employed and freelance employed to be repaid some of their income or corporate tax (Bofinger 2020). There should be a freeze on wage increases across the economy.
Monetary policy can over “all of the cracks” remaining (Stein 2013: 2). And therefore monetary policy have to be supportive of fiscal policy. Covid-19 monetary policy must focused on rescuing the real economy, by rescuing businesses and providing employment (Oberholzer 2020). Monetary policy must be aimed at continuing to push for policy rates cuts as far prudently as possible; and injecting liquidity into the financial system. South Africa should take its cue from the US Federal Reserve which has provided credit to critical corporates through purchasing bonds, issuing loans and guarantee debts. The US Fed intervened in both the primary and secondary capital markets. The US Fed is even supporting consumer and student loans.
Ameliorating the social impact of Covid-19
The lockdown have raise the specter of all ready alarming levels of violence and abuse against women and children, to explode to terrifying levels. In addition, the Covid-19 related economic downturn, business closures and looming unemployment, have increased levels of stress and anxiety and mental breakdowns. The prolonged lockdown will increase the rise of gangsterism, teenage pregnancies and drug abuse. The “cabin fever” phenomenon associated with lockdowns, and the stress associated with the economic impact of Covid-19, may increase suicides, marriage and social breakdown.
Crime levels in South Africa is likely to increase to even higher levels. Large numbers of South Africans are facing starvation and hunger, because of the economic decline associated with Covid-19. As part of the eleventh pillar, civil society as an economic sector should be boosted to secure existing jobs and create new ones. Civil society groups should help co-deliver public and basic services in communities – from tackling gangsterism, combating gender-based violence and fostering community police partnerships to keep crime down. Civil society organizations are also crucial to distribute food to the needy.
Currently, no provision has been made in the government’s Covid-19 emergency stimulus to help struggling non-profit civil society organisations, which includes charities, community-based organisations and civil movements, to survive possible collapse because of the financial devastation Covid-19 wrecks. The private sector donations to Covid-19 emergency fund also do not specifically include supporting civil society organisations. This should change.
Covid-19 disproportionally affect the poor, those with lower-income and vulnerable. Those living in, travelling and working in the informal sectors are particularly affected. People with underlying health conditions are particularly at risk. In South Africa, “with high inequalities by class, age, gender, ethnicity or residence status” (UNDP 2020: 7), Covid-19 will amplify these inequalities. Providing direct income, food and medical hygiene support during Covid-19 countrywide lockdown for the income-less mass poor, unemployed and those homeless or living in informal settings, therefore should be an important pillar of the Covid-19 response.
As part of the 12the pillar, government has decided to give a Covid-19 cash grant to poorer people, who are the most vulnerable. The Covid-19 social grant should be extended beyond the Covid-19 period. Social grants could be linked to training, civic work in critical areas such as crime prevention, community cleaning and providing support to the vulnerable (Shei, Costa, Reis and Ko 2014).
References
Kelli Barrett (2015) “Cleaning up: This $25 billion industry generates 220 000 jobs”, , August 5
(https://www.greenbiz.com/article/cleaning-25-billion-industry-generates-220000-jobs)
Todd BenDor, T. William Lester, Avery Livengood, Adam Davis and Logan Yonavjak (2015) “Estimating the Size and Impact of the Ecological Restoration Economy”, 10 (6): e0128339. https://doi.org/10.1371/journal.pone.0128339, June 17
(https://journals.plos.org/plosone/article?id=10.1371/journal.pone.0128339)
Peter Bofinger (2020) “Coronavirus crisis: now is the hour of Modern Monetary Theory”, , March 23
(https://www.socialeurope.eu/coronavirus-crisis-now-is-the-hour-of-modern-monetary-theory)
Franco Bruni and Jose Siaba Serrate (2020) “Monetary Policy Strategies and the Covid-19 Crisis”, Policy Brief, G20 Insights, April 17
(https://www.g20-insights.org/policy_briefs/monetary-policies-strategies-and-the-covid-19-crisis/)
*This article was first published on allAfrica. To view the article click here.
